Rental growth is continuing in Adelaide’s industrial market as demand for premium space remains strong, despite increased vacancy, according to the latest research from Knight Frank.

Knight Frank’s Australian Industrial Review Q4 2023 found Adelaide had the second highest quarterly growth for prime rents over Q4 2023 at 1.7%, sitting just behind Perth at 1.8%. Brisbane saw prime rents grow by 0.7% in Q4, while Melbourne saw growth of 0.45% and Sydney rents remained flat.

Over 2023, prime rents in Adelaide rose by 11.65%, behind Brisbane (15%) and Sydney (16%).

Secondary net face rents in Adelaide’s industrial market increased by 0.65% over Q4 and 7.18% year-on-year.

Knight Frank Head of Industrial Logistics SA David Ludlow said there were a range of factors driving industrial rental growth in Adelaide.

“There is a limited supply of quality space in Adelaide’s industrial market, prompting tenants to pay premiums for better facilities, alongside a steady rate of tenant movements and flight to quality,” he said.

“We have seen some increase in vacancy overall, but there is still a lack of high quality prime industrial space in the market, as this space is absorbed promptly with high tenant enquiry.”

The Knight Frank research found vacancy for properties of greater than 5,000sq m increased from 148,336sq m in Q3 2023 to 221,451sq m in Q4. Additional stock hit the market during the quarter, however, take-up levels remained low, with only 10,278 sqm leased in Q4.

Notably, in Q4, the northern precincts witnessed the most significant growth in prime rents, with the Inner North increasing by 2.24% over the quarter and the Outer North by 2.65%.

The figures for Northern precincts highlights the enduring attractiveness and investment potential of northern precincts. Both in terms of rental value and land values (see below) they continue to perform strongly.

Land values rise, northern precincts shine

Land values for smaller lots (of less than 5,000sq m) rose across Adelaide’s industrial precincts in Q4 except for the Inner West, which remained unchanged. The Inner North recorded the most significant annual rise at 15.98%.

For medium-sized lots (1-5ha), land values experienced growth across all precincts, notably in the Inner West, and Inner and Outer South.

Knight Frank Partner, Research & Consulting Dr Tony McGough said the rolling three-year forecasted development supply for Adelaide’s industrial market highlights the dominance of the northern precincts, consistent with previous trends.

“Out of the projected 167,882 sqm of development costed at $368,095,000 due by end of 2026, a substantial 60 per cent is concentrated in the northern precincts, while the southern precincts are expected to receive 34% of the development supply,” he said.

“This underscores the enduring attractiveness and investment potential of the northern precincts, affirming their continued importance in shaping the Adelaide industrial market.”

Yields stabilise; high value sales climb

Industrial yields in Adelaide’s industrial market remained steady overall over Q4 2023, with both average prime and secondary yields seeing no change.

On a precinct level, only the northern precincts experienced movement, albeit very minor, with prime yields increasing by three basis points and two basis points in the Inner and Outer North precincts respectively. The Outer North also saw median secondary yields rise by two basis points.

The Knight Frank research found asset sales in the industrial market above $5 million experienced a significant surge in both transaction volumes and total value in Q4 2023.

The number of sales rose from nine transactions worth $72.82 million in Q3 2023 to 16 transactions worth $217.08 million in Q4 2023.

Notably, the northern precincts emerged as the primary driver of this growth, constituting 71.8% of total sales by value, amounting to $155.89 million, and 75% in terms of transaction numbers (12 out of 16).

Industrial sales year on year in Adelaide’s industrial market were just 2.6% less in the 2023 calendar year ($550.9m) compared to 2022 ($565.7m), with the Inner North precinct peaking at its highest level since 2019.

“Overall, 2023 was a year of strong growth and performance for the industrial market in Adelaide, with market conditions indicating a positive outlook for the year ahead,” said Mr Ludlow.